Interacting demand and supply conditions in European bank lending

Almas Heshmati () and Ossi Lindstrom

No 11859, Discussion Papers from MTT Agrifood Research Finland

Abstract: This paper investigates credit channel of monetary policy by accounting for simultaneous interaction of banks' and firms' credit conditions and their adjustment costs, which are neglected in the previous studies. Based on the European data we find that these conditions are interacting, although their adjustment costs differ across banks, firm size, countries, and over time. The results suggest that a common European monetary policy should then deal with uncertainty over credit market conditions and firms' and banks' country-specific and size-dependent reactions. It should also monitor large firms' exploitation of banks' credit rationing as it can have great impacts on the smaller firms' lending and financial stability conditions.

Keywords: Demand; and; Price; Analysis (search for similar items in EconPapers)
Pages: 31
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:ags:mttfdp:11859

DOI: 10.22004/ag.econ.11859

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